Your Agency Is Worth More Than You Think. That Creates a Problem.

You have built a profitable agency. Let us say it turns over £1.2m with a 55% gross margin. You own 100% of the shares. On paper, the business is worth £1.5m to £3m depending on your net profit and growth rate.

That is a good problem to have. But it creates a real tax problem when you die.

Your agency is part of your estate. If you are unmarried, inheritance tax (IHT) hits at 40% on everything above £325,000. If you own the agency outright, your children could lose nearly half its value to HMRC before they inherit a single share.

A family investment company (FIC) can fix that. It lets you move agency shares out of your estate while keeping control of the business. This article explains how it works, what it costs, and whether it makes sense for your agency.

What Is a Family Investment Company?

A family investment company is a private limited company set up to hold and manage family wealth. In your case, it holds the shares in your trading agency. You set it up, subscribe for shares, and then gift shares in the FIC to your children or other family members over time.

The FIC owns the agency shares. You control the FIC. Your children own shares in the FIC but have no control until you give it to them.

Here is the critical tax point. When you gift shares in the FIC to your children, those shares leave your estate. Provided you survive seven years, the value of those shares is outside your estate for IHT purposes. The agency stays inside the FIC, trading as normal.

This is not a trust. It is a company. That matters because company law is more flexible than trust law. You can retain voting rights, control dividends, and decide when your children get access to value.

How a Family Investment Company Saves Inheritance Tax on Your Agency

Let us walk through the numbers with a real example.

You own 100% of a digital agency worth £2m. You are unmarried. Your estate is worth £2.5m including the agency, your home, and investments.

Without a FIC, your estate pays IHT at 40% on everything above £325,000. That is 40% of £2,175,000, which comes to £870,000. Your children receive £1.63m. HMRC takes £870k.

With a FIC, you transfer your agency shares into the FIC in exchange for shares in the FIC. You then gift shares in the FIC to your children over several years. Each gift is a potentially exempt transfer (PET). If you survive seven years after each gift, the value is outside your estate.

You retain a special class of shares that give you voting control and the right to dividends. Your children get ordinary shares with no voting rights. They own the economic value. You own the control.

After seven years, the £2m agency value sits in the FIC, owned by your children for IHT purposes. Your estate is £500k (your home and investments). IHT on that is £70,000 (40% of £175k). Your children keep nearly the full value of the agency.

That is a saving of roughly £800,000. Enough to justify proper advice and setup costs.

The Structure: How It Actually Works

Step 1: Set Up the FIC

You incorporate a new company. This is the family investment company. It has two classes of shares:

  • Voting shares (typically "A shares"), you hold these. They carry voting rights but limited economic rights. You decide dividends and strategy.
  • Non-voting shares (typically "B shares"), your children hold these. They carry the economic value but no control. They receive dividends when you declare them.

The FIC's articles of association are drafted specifically to separate control from value. This is not a standard Companies House template. You need a solicitor who specialises in FIC work.

Step 2: Transfer Agency Shares into the FIC

You sell your agency shares to the FIC. The FIC issues shares to you in return. This is a share-for-share exchange under section 135 TCGA 1992. If structured correctly, it is tax neutral. No capital gains tax arises on the transfer.

The FIC now owns 100% of your trading agency. You own 100% of the FIC.

Step 3: Gift FIC Shares to Your Children

You gift the non-voting B shares to your children. Each gift is a potentially exempt transfer. You complete a gift form, update the FIC's register of members, and file confirmation statements at Companies House.

You do not gift all shares at once. You gift shares gradually, using your annual gift allowances (£3,000 per year) and normal expenditure out of income if the agency pays dividends. The goal is to reduce your estate over time without triggering immediate IHT.

If you gift shares worth more than the nil-rate band (£325,000) in any seven-year period, the excess uses your residence nil-rate band if available. Your accountant models this before you make any gifts.

Step 4: Retain Control Through Your Voting Shares

You keep the A shares. These carry 51% or more of the voting rights. You decide when dividends are paid, who becomes a director, and whether to sell the agency. Your children cannot force a sale or demand dividends.

This is the key advantage over simply gifting agency shares directly. If you gift shares in the trading company to your children, they become shareholders with voting rights. They can block a sale. They can demand information. You lose control.

With a FIC, you control the FIC. The FIC controls the agency. Your children own value but not power.

What About Business Property Relief?

You might have heard that trading businesses qualify for Business Property Relief (BPR) at 100% after two years. If your agency qualifies for BPR, it is already exempt from IHT. Why bother with a FIC?

BPR is not guaranteed. HMRC challenges BPR claims regularly. If your agency holds significant cash reserves, owns investment property, or has a large retained profit balance that is not needed for trading, HMRC may argue that the business is partly investment-focused. BPR can be reduced or denied.

A FIC gives you certainty. You remove the value from your estate by gifting shares. You do not rely on HMRC accepting a BPR claim years after your death.

BPR also only applies to the trading company itself. If you extract cash from the agency and hold it personally, that cash does not qualify. A FIC can hold that cash and invest it, keeping it outside your estate while retaining control.

Most agency founders we advise use a combination of BPR and a FIC. The agency itself qualifies for BPR. The cash extraction and growth in value above the BPR limit sit in the FIC. Both strategies work together.

Costs and Practicalities

Setting up a FIC is not cheap. You need:

  • Solicitor fees: £5,000 to £15,000 for drafting articles of association, shareholder agreements, and the share-for-share exchange. Do not use a high-street solicitor. Use one who does FIC work regularly.
  • Accountancy fees: £2,000 to £5,000 for structuring the transfer, modelling IHT outcomes, and filing the corporation tax returns for the FIC.
  • Ongoing costs: The FIC needs annual accounts, a corporation tax return, and confirmation statements. Expect £1,500 to £3,000 per year in accountancy fees.

Compare that to the IHT saving. On a £2m agency, you are looking at an £800k saving. The setup costs are a fraction of that.

Timing matters. If you are over 50 and your agency is worth more than £500k, start the process now. The seven-year clock starts when you make the first gift. Every year you delay costs your family 40% of the growth in value.

Risks and Pitfalls

Gift With Reservation of Benefit

If you gift shares in the FIC but continue to receive all the dividends from the agency, HMRC may treat the gift as a gift with reservation of benefit. The shares stay in your estate for IHT purposes.

Solution: dividends are paid to all shareholders in proportion to their holdings. Your children receive dividends on their B shares. You receive dividends on your A shares. The dividend policy is commercial and documented.

Pre-Owned Assets Tax

If you gift shares but continue to benefit from the agency's value (for example, by using agency assets personally), you may trigger the pre-owned assets tax charge. This is an annual income tax charge on the benefit you receive.

Solution: keep your personal use of agency assets separate. Document any arrangements. Pay market value for personal use.

Capital Gains Tax on Future Sale

Your children inherit your base cost in the FIC shares. If the agency is sold later, your children pay capital gains tax on the gain from your original cost. Business Asset Disposal Relief (BADR) may apply if the FIC is a trading company and your children hold at least 5% of the shares and are employees or officers.

Plan for this. If your children are not involved in the agency, they may not qualify for BADR. The sale proceeds could be taxed at 20% rather than 10%.

Our ICAEW qualified team at Agency Founder Finance models these scenarios before you commit. We look at the full lifecycle, not just the IHT saving.

Does a FIC Make Sense for Your Agency?

A family investment company works best when:

  • Your agency is worth more than £500k
  • You are over 50 and thinking about succession
  • You have children or other family members you want to benefit
  • You want to retain control of the business
  • You have cash or investments outside the agency that could sit in the FIC

A FIC is less suitable if:

  • Your agency is worth under £300k (setup costs eat into the saving)
  • You plan to sell the agency within five years (the IHT benefit takes time)
  • Your children are not reliable or you have concerns about divorce or creditor claims
  • You need the cash yourself (gifting shares reduces your personal liquidity)

Alternatives to a Family Investment Company

You could use a trust instead. Trusts have their own IHT advantages, but they are less flexible. Trusts have a 10-year anniversary charge and an exit charge. A FIC has neither. Trusts are also subject to the settlor-interested rules, which can be restrictive for agency founders who want to remain involved.

You could simply gift agency shares directly to your children. That works for IHT but gives them control. Most agency founders do not want their 22-year-old son having a say in board decisions.

You could rely on BPR alone. That works if HMRC accepts the claim. It is less certain than a FIC.

You could do nothing. That costs your family 40% of your agency's value. Most founders find that unacceptable.

Next Steps

If a family investment company sounds like it fits your situation, here is what to do next.

First, get a valuation of your agency. You need a realistic figure to model the IHT saving. Your accountant can help with this or refer you to a business valuation specialist.

Second, speak to a solicitor who specialises in FICs. Ask them how many they have set up. Ask for case studies. A good solicitor will talk you through the articles, the share structure, and the shareholder agreement.

Third, work with your accountant to model the tax outcomes. Look at IHT, capital gains on a future sale, dividend tax for your children, and the ongoing compliance costs. Make sure the numbers work before you proceed.

We work with agency founders on FIC structures regularly. If you want to talk through whether it fits your situation, get in touch. We can run the numbers and recommend a solicitor who knows the agency space.

Your agency is your legacy. A family investment company helps you pass it on without giving a third of it to HMRC. Start the conversation now. The seven-year clock is not getting any shorter.